The security case for bringing home manufacturing is obvious. Is there an economic one?
Save time by listening to our audio articles as you multitaskBut Mr Boskin’s laissez-faire approach is no longer in vogue among Western policymakers. They have introduced a sweep of policies intended to. In July America’s Congress passed the Chips and Science Act, which will dole out $52bn to the chip industry over five years, mostly to subsidise domestic production. Japan and Europe are also spending big on chips.
Arguments for onshoring fit into two categories. The first concern security. More than 90% of advanced chips, many needed for manufacturing weapons, are made in Taiwan—far closer to China than is comfortable for the West. The second concern economics. Advocates claim that manufacturing can create mountains of well-paid jobs. Economists are doubtful.
But there is another, more subtle economic case for onshoring. Gary Pisano and Willy Shih, both of Harvard Business School, argue that there can be broader “spillover” benefits to innovation from having a strong manufacturing base. One way this happens is when research and development on products is done next to the manufacturing of them. This eases collaboration between the two stages, which is especially important in the early days of new products.
What about when firms deem it better value-for-money to move production elsewhere? Another working paper by Lee Branstetter, then of Carnegie Mellon University, Britta Glennon of the University of Pennsylvania and colleagues, examines just that. In 2001 Taiwan lifted rules banning the offshoring of production to China, but only for some products. The study finds that offshoring did reduce the quantity of patents related to these products.
In a twist of fate, such openness to foreign talent may support manufacturing at home. Another working paper by Ms Glennon finds strong evidence that restrictions onvisas, which are intended for employment of high-skilled foreigners, lead to more offshoring, as firms are forced to head abroad for talent. That is an inconvenient finding for the many politicians who both support domestic manufacturing and are loth to increase immigration.
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